Harvard Business Review Article - Volkswagen Case Analysis

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1) What is your assessment of the new process for managing priorities at Volkswagen of America? Are the criticisms justified? Is it an improvement over the old process? The new process that was instituted to prioritize IT projects at Volkswagen of America is very well organized. It takes an IT project and looks at it from multiple aspects, from business to IT. It also allows for several departmental entities to play a more active role in tying in business objectives with stated benefits of the IT project. As stated in Applegate, “IT governance is the effort to devise an overarching and integrated approach, addressing broad themes such as operating performance, strategic control, risk management, and values alignment.” (Applegate, 403) In tying it to the case we can see this was the goal of the new process, to tie in business goals with the IT projects. As with the problem with Volkswagen and other company, many times IT’s objectives isn’t in line with what is best for the business as a whole. As Applegate best states it “The need for a system of governance is partially driven by what we refer to as the agency problem: the fact that the physical separation between the owners of a company and its managers (or agents) provides those managers the opportunity to act in ways that are advantageous to themselves but detrimental to the interests of the owners.” (Applegate, 404) Volkswagen of America needs to separate the governance of the agency problem to help mitigate control and properly asses were to best spend IT’s limited resources. Often projects may not provide enough added benefits to be justified into the budget, therefore this process is in place to help mitigate that risk and ensure all projects conform to providing value to the company and its stakeholders. “Governance aims to ensure that managers and employees faithfully translate strategies into operational initiatives throughout the organization, that they protect organizational assets and use them efficiently, and that they comply with laws and regulations.” (Applegate, 404) Volkswagen accomplishes this through the different phases they place the IT projects through. The first phase communicates the process and identifies dependencies. In the second phase, Volkswagen accomplishes what Applegate was referring to by translating strategies into operational initiatives. They classified each project by investment types which are: Stay in business, return on investment (ROI), and option-creating investment (OCI). By classifying them into the three different investment types, Volkswagen was able to distinguish how the project affected the business goals and objects and assigned budgets accordingly. One of the positive benefits to the new system of selecting IT projects is that it allows different department employees to present a business case as to why they feel their project should be funded. In that each project is tied to the company’s strategy and business goal. For Volkswagen these strategies and goals was the NRG initiative that prepped the company for the growth in new model offerings. After which, the said goals are debated amongst the committee to prioritize the projects based on impact. This allows each IT case to be heard and allowed time to make the case for IT. A well implemented IT governance system helps achieve IT and business goals, Applegate states this in the following quote; “Strategic control systems focus on communicating and implementing the organization's strategy, while encouraging debate about that strategy intended to stimulate learning and growth.” (Applegate, 405) Volkswagen in implementing their enterprise goal portfolios allowed each department to make the case for IT budget and if the case aligned with the company’s strategy and passed the other criteria listed above, it was then recommended and prioritized for approval. By switching the focus from strictly just IT, to a combination of IT and business, Volkswagen was able to prioritize...
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